Dispute prevention: Using mediation as a business tool, Part One
“We are used to thinking about competitions in which there is only one winner… But the world is not really like that… The key to doing well lies not in overcoming others, but in eliciting their cooperation.” – Robert Axelrod
Mediation is often effective if the parties can engage in person and in a private but controlled environment. Facilitated direct conversation helps eliminate misunderstandings and failures in communication. Discussions have real context when face to face.
Relationships typically become even more important after a business deal has been completed. Once the contract has been signed it goes in a file and the relationship between the parties becomes the most important thing. That relationship is being negotiated all the time.
A significant aspect of ongoing relationships is negotiating conflict. Inevitably, problems arise during the life of the contract. For example, a party might realise they neglected to stipulate a key term, leading to different perceptions of what is fair. Or one side may come to believe that the other is failing to live up to the agreement.
Agreeing on a dispute prevention clause in advance, and then actively utilising that provision, can go a long way towards helping parties manage conflict proactively when – or even before – it arises. Learning how to discuss areas of conflict, rather than simply sweeping them under the rug, can be just as important.
Commercial parties should be encouraged to identify disputes early and to identify issues that may potentially lead to a dispute, and then work together to de-escalate the issue or dispute. Both parties to the agreement need to keep their focus on commercial interests rather than the win/lose results of litigation.
Mediation provides a framework that strengthens the ability of business people to adjust relationships and resolve problems in a straightforward, efficient and effective way without losing control of the outcome to a judge or arbitrator. However, after initial attempts to negotiate fail because the parties met with strong emotions and tough initial positions, and settlement momentum dissipates through frustration or lack of structure, the common reaction is to move ahead with litigation or arbitration. This is disappointing but not surprising, since litigation and arbitration represent the established “default” framework for handling disputes when party to party negotiations fail.
However, a growing number of business managers and in-house counsel recognise that they need to consider new options besides unassisted negotiation on the one hand and third-party adjudication on the other. Mediation permits parties to engage in a carefully managed discourse where the dispute or issue is viewed against the backdrop of business interests, practical considerations and options for mutual gain.
Mediation can provide distinct advantages over direct party to party negotiations. The mediator can listen, suggest, steer, facilitate, test realities, and explore options for mutual gain. By having a facilitator take control of the negotiating experience, the parties can focus on the outcome.
There are a number of benefits that support the increased use of early intervention facilitation in commercial relationships:
Customisation of the process
Mediation is extraordinarily flexible when used properly. The range of options for business parties seeking third-party assistance to facilitate is limited only by the willingness of the participants and the creativity of the mediator. There are many ways in which mediation can be tailored to the needs of the parties and the particular issues in question. Examples include:
- Setting the basic format for interaction between the parties and the mediator;
- Use of information to provide an objective foundation for negotiations;
- Use of technology (including online mediation);
- A mediator can facilitate submissions (joint or several briefs) on legal or factual issues;
- Presentation of “best-case” presentations for the benefit of business decision-makers;
- Engagement of one or more experts to provide reports on key technical issues.
A significant value of mediation – and where it is often superior to unaided negotiations – is in creating an opportunity for parties to communicate effectively. As has been said, “Mediation can introduce light where before there was only heat.” In the course of disputes, business managers and their advisers become emotionally invested in the position which in itself creates a further obstacle to meaningful discussion and resolution. Part of the role of a mediator is to bring the parties together in an environment in which they can have their say but at the same time establish new and more constructive ways of interacting.
Commercial reality testing
Experienced mediators – especially those with business experience – may be particularly qualified to help parties examine a conflict or an issue within the context of best and worst alternatives to a negotiated settlement as well as larger business aims. Mediators can routinely help parties confront the hard realities of their established positions, highlighting weaknesses and drawing attention to the compounding of risks and costs that accompany litigation or arbitration. Without the confines of a legal/factual focus (which is at the heart of litigation or arbitration) mediators can also help parties focus on underlying interests: strategic, economic and personal.
Creative and durable solutions
The flexibility that should be the hallmark of mediation extends also to the range of possible mediated solutions. The final result of a successful mediation may range from the transfer of dollars to complex exchanges of performance and/or promises – these are all results well beyond the remedial limitations of a court proceeding or arbitration. There is a significant body of evidence that shows parties are more likely to live up to the terms of a mediated settlement agreement than a court judgment or an arbitration award.
Continuing relationships maintained or enhanced
For me, this is the key issue when contemplating the broader use of mediation other than as an adjunct to the litigation process. This is of fundamental importance in ensuring that commercial relationships stay on track. Mediation has the ability to restore broken or strained relationships, or even to create new business opportunities for mutual gain:
“Mediation can restore trust where business relationships have turned sour. Parties used to be partners, used to act together to fulfil their common interest, have lost confidence. The channel of communication is broken. Using mediation is a method to restore dialogue and confidence.” Pierre Raoul Duval and Alexandra Munoz, Mediation in France.
In Part 2 we will look at examples of both early and continuing intervention by mediators/facilitators in commercial relationships.
Paul Sills firstname.lastname@example.org is an Auckland barrister and mediator specialising in commercial and civil litigation. He is an AMINZ Mediation Panel member.
Last updated on the 5th April 2019